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Banking Inefficiency in Central and Eastern European countries under a Quadratic Loss Function

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Author Info
Anastasia Koutsomanoli-Filippaki (Council of Economic Advisors, Ministry of Economy and Finance, Greece)
Emmanuel Mamatzakis () (Department of Economics, University of Macedonia)

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Abstract

This paper employs a specification of a quadratic loss function based on forward looking rational expectations to model the underlying dynamics of efficiency scores in the banking industry of eleven Central and Eastern European countries over the period 1998-2005. Results show that there is considerable variation in the adjustment speed to the long run equilibrium across banking systems and over time, while it also appears that the recent accession to the EU has not led to the expected increase in the speed of adjustment to the long run equilibrium. Moreover, banks’ ownership structure appears to assert an influence on the speed at which credit institutions correct their past-period inefficiency.

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Publisher Info
Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2008_11.

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Date of creation: Sep 2008
Date of revision: Sep 2008
Handle: RePEc:mcd:mcddps:2008_11

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Related research
Keywords: Speed of adjustment; long run equilibrium; rational expectations; banking inefficiency.;

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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    Other versions:
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
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  4. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2005. "Bank performance, efficiency and ownership in transition countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 31-53, January. [Downloadable!] (restricted)
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  5. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August. [Downloadable!] (restricted)
  6. Hasan, Iftekhar & Marton, Katherin, 2003. "Development and efficiency of the banking sector in a transitional economy: Hungarian experience," Journal of Banking & Finance, Elsevier, vol. 27(12), pages 2249-2271, December. [Downloadable!] (restricted)
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  7. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June. [Downloadable!] (restricted)
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  9. Cuthbertson, Keith & Taylor, Mark P., 1990. "Money demand, expectations, and the forward-looking model," Journal of Policy Modeling, Elsevier, vol. 12(2), pages 289-315. [Downloadable!] (restricted)
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  10. Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January. [Downloadable!] (restricted)
  11. Mizen, Paul, 1994. "A Buffer Stock Model of the Demand for Money by the Personal Sector," Bulletin of Economic Research, Blackwell Publishing, vol. 46(4), pages 315-30, October.
  12. Huang, Tai-Hsin & Shen, Chung-Hua, 2002. "Seasonal cointegration and cross-equation restrictions on a forward-looking buffer stock model of money demand," Journal of Econometrics, Elsevier, vol. 111(1), pages 11-46, November. [Downloadable!] (restricted)
  13. Carvallo, Oscar & Kasman, Adnan, 2005. "Cost efficiency in the Latin American and Caribbean banking systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(1), pages 55-72, January. [Downloadable!] (restricted)
  14. Sturm, Jan-Egbert & Williams, Barry, 2004. "Foreign bank entry, deregulation and bank efficiency: Lessons from the Australian experience," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1775-1799, July. [Downloadable!] (restricted)
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